Even though Gulf money was poured in to rebuild the shops and houses destroyed by Israeli tanks and bulldozers nine years ago, an atmosphere of shabby decrepitude hangs over Jenin’s refugee camp.

In the larger Palestinian cities of the West Bank, signs of fresh prosperity are evident everywhere, from the building cranes and chic new restaurants of Ramallah to the glittering stock exchange and cinema that grace the once violent streets of Nablus.

But the economic revival that swept the territory once the Second Intifada – the most recent uprising against Israel, which began in September 2000 – started to fizzle out seven years ago, has largely passed this northern corner of the West Bank by.

On rutted streets strewn with litter, urchins kicked footballs against graffiti-scarred walls last week. Seated on rickety chairs outside shop doorways, their parents idly passed the time in desultory conversation.

With factories closed and unemployment at 60 per cent, there is little else to do in a camp that exudes poverty and hopelessness like perhaps nowhere else in the West Bank.

But even here, despite the absence of jubilation that erupted further south, the mood of despondency has been tempered by a rising sense of expectation after the Palestinian leadership submitted its historic application for statehood to the United Nations on Friday.

In Ramallah’s Yasser Arafat Square, crowds gathered around a big screen, whooping and applauding as Mahmoud Abbas, the president of the Palestinian Authority, set out the case for why his people should have the right to be called citizens of their own state.

Few of those watching in the square, or gathered around TV sets at home, genuinely believe that Palestinians stand on the threshold of statehood, or that any vote in the UN will prompt Israel to end its 44-year occupation of their land. But by defying the world’s most powerful country, Palestinians believe they are wresting control of their destiny from the United States, whose leadership of the peace process is widely discredited in the West Bank.

“We are going to the UN out of a sense of hopelessness,” said Nayfeh Abuseba, a 67-year-old housewife in Jenin’s refugee camp. “America has not helped us. The world has not helped us. The Americans and Israelis will not give us a state. But maybe the UN can help us.”

Such views are common across the West Bank, Gaza and East Jerusalem, the three components of a would-be Palestinian state.

As Palestinians argue, they have been negotiating with Israel under US tutelage since the Madrid peace talks of 1991, an approach that has yielded nothing but the constant expansion of Jewish settlements whose steady encroachment has undermined the viability of a future state.

By going to the United Nations, Palestinian leaders and their people insist that they are not giving up on negotiations with Israel, they are merely redressing the imbalance caused by what they see as Washington’s unwavering support of successive Israeli governments.

“What we need, and what this is, is a change of tack,” said Amer Hasan al-Atiyeh, an English teacher from Ramallah. “Leaving our fate in the hands of the Americans and the Israelis is Lewis Carroll’s oysters leaving their fate in the hands of the Walrus and the Carpenter.

“The Americans might tell us they 'deeply sympathise’, but we cannot be so naive as to think that, if we maintain the status quo, we will not end up being completely eaten and there will be no Palestine left to call a state.”

But if there is a renewed sense of determination in the West Bank after years of drift, it is accompanied by a fear – particularly in Israel, but also in some Palestinian circles – that heightened expectation can lead to fresh instability, growing violence and maybe even a Third Intifada.

Memories of the most recent uprising are in evidence everywhere in Jenin. Plastered along walls and above doors in the refugee camps, row after row of peeling posters pay tribute to Palestinian martyrs, pictured with rifles and grenade-launchers in their hands, killed during the struggle with Israel. Almost everyone The Sunday Telegraph spoke to along a single street in the camp admitted to having close relatives incarcerated in Israeli prisons on charges of terrorism.

Mrs Abuseba, the housewife, said two of her sons were serving 30-year sentences. A third, pictured on a poster nearby, was killed in a gun battle in the camp in 2007. Seated next to her, Wardeh Abdel-Khaleq, confessed to having two brothers serving life sentences for their role in the Battle of Jenin in 2002, when Israeli troops razed much of the camp during an operation to root out Palestinian militants from the Al Aqsa Martyrs’ brigade.

Among the women, there is little appetite for a return of confrontation, peaceful or otherwise, with Israel. But such views are not shared by all the men of the camp.

Mr Abbas, whose moderate views and policy of co-operating with Israel to pacify the West Bank have earned him accusations of “collaboration” in the past, is enjoying unexpected popularity for his challenge to the United States, which has threatened to use its Security Council veto to block his statehood application.

But many ordinary Palestinians expect him to continue being more robust, especially if the statehood bid fails or Israel refuses to end its occupation. There are calls for Arab Spring-style protests against Israel and even pressure for Mr Abbas, who is also popularly known as Abu Mazen, to make good on a threat to dissolve his government, hand over full responsibility of the West Bank to Israel and return the PLO to its resistance roots.

Some, like Anwar Abuseba, one of the housewife’s surviving sons, believe resistance should go even further, although he insisted that there should not be a repeat of the suicide bombings on undisputed Israeli territory that marred the Second Intifada.

“This move by Abu Mazen is correct,” he said. “But it should be followed by other steps: both peaceful resistance and armed resistance. We have learned from the mistakes of the past, but attacks on Israeli settlers and soldiers in the West Bank would be justified.”

For the moment, the Palestinian leadership in the West Bank – as opposed to Hamas in Gaza – says it remains committed to peaceful solutions and to negotiation. But there is no doubt that tensions are rising.

On Tuesday, their faces hidden behind masks, a group of teenage settlers padded silently down the barren hills of the West Bank to launch an attack on the Palestinian farming village of Asira el-Qbilya. Surrounding two Arab houses, they smashed windows and cut down olive trees, triggering a stone-throwing confrontation with the villagers. The Israeli army intervened, lobbing round after round after round of tear gas at the Palestinians as The Sunday Telegraph looked on.

Such incidents are by no means uncommon – indeed, Asira el-Qbilya had come under settler attack three weeks before – but an escalation of such incidents in recent days has raised temperatures significantly.

Three days later, just hours before Mr Abbas addressed the General Assembly, Israeli troops shot dead a stone-throwing Palestinian youth after another Arab village was attacked by settlers.

Even if the majority of Palestinians remain committed to peace, it is incidents such as these, leading to deaths at the hands of the Israeli security forces, that could cause a major escalation in violence that cannot subsequently be controlled.

Most settlers say they are opposed to the violence being perpetrated by radicals on the fringe of the movement, even if they remain categorically opposed to leaving the West Bank, which they see as land willed to the Jewish people by God. But they warn that any kind of recognition of Palestinian national aspirations would be an irresponsible step that will only encourage Arabs in the West Bank to turn on their Jewish neighbours.

“There is no doubt that the success of the Palestinians at the UN would raise the bloodshed, because the Arabs would have expectations of a state, and the state of Israel is not ready to enter into this kind of danger,” said Noam Sharon, a resident of the settlement of Psagot near Ramallah.

The Israeli government sees things much the same way. Benjamin Netanyahu, the Israeli prime minister, has accused the Palestinians of deliberately seeking to bypass negotiations in order not to make the “painful compromises” needed to achieve a just and peaceful settlement to the conflict – an argument that has received full American backing.

Mr Netanyahu has proposed an immediate resumption of peace talks, an offer rejected by the Palestinians unless he abides by pledges made during earlier peace talks to freeze construction in the settlements.

As the arguments rage, and with both sides showing little willingness to relent on the issue of settlements, the uneasy calm that has settled over the West Bank in recent years looks ever more tenuous.

Much could depend on how the United States and Israel, which have both signalled their determination to punish Mr Abbas for refusing to back down, choose to respond. Congress in Washington has already threatened to cut off aid, worth more than £300 million, to the Palestinian Authority. Ministers in Mr Netanyahu’s government say they could withhold customs revenues Israel collects on behalf of the Palestinians.

Either move could potentially cause the bankruptcy of the Palestinian Authority and its possible dissolution. Voices within the Israeli defence establishment warn that such a prospect could be disastrous for Israel’s security. The Palestinian Security Forces have recruited many former militants who have worked with Israel to keep the peace in the West Bank in exchange for a regular salary. But many of them have already been on half-pay for the past two months after the Palestinian Authority ran short of cash as a result of a present budgetary crisis.

With the bid for statehood now made, some of those former militants already say they are eager to resume the struggle. If they do not receive their salaries, those numbers could grow.

On the streets of Jenin, a 29-year-old Palestinian serviceman, who declined to give his name, said he had never forgotten his grievances against Israel, which has jailed him twice and continues to hold five of his brothers in prison.

“I am now with the Palestinian Authority and I take my orders from the president,” he said. “But if the Palestinian people start an intifada, I will join it. If the Israelis do not accept a Palestinian state, there will be a military intifada and there will be a massacre.”